As federal and state budget pressures mount, California hospital leaders are issuing an increasingly stark warning: safety‑net hospitals are nearing a breaking point under the weight of Medi‑Cal cuts, regulatory mandates and shrinking reimbursement.
Chris Van Gorder, CEO of San Diego-based Scripps Health, didn’t mince words in an interview with Becker’s Hospital Review.
“If we can’t keep hospitals open, emergency departments close, and entire communities lose access to care. We may not be able to serve everyone,” he said. “We haven’t made those decisions yet. I’ve raised the issue with our board, saying difficult decisions could be ahead, but I’m not ready to make recommendations.”
The stark comments come as California grapples with an $18 billion budget deficit — significantly larger than originally forecast — and as Medi‑Cal reimbursement cuts slated for 2027 loom large over health systems that already operate on razor‑thin margins, according to nonprofit media outlet CalMatters.
Mr. Van Gorder’s warning isn’t based on hypotheticals, but on concrete internal analyses.
Brett Tande, corporate executive vice president and CFO, notes that the health system’s projections show a potential $100 million annual financial hit starting in 2027 — a figure that incorporates cuts in Medi‑Cal, ongoing uncertainty around provider fees and possible changes to 340B drug‑pricing revenue.
“[The OBBBA] is going to have a massive impact, and despite California’s concerns, the ACA subsidies are still expiring,” Mr. Tande told Becker’s. “That adds to the total impact, which is how we end up with numbers exceeding $100 million in annual financial exposure.”
“One of the problems is people separate all these issues into buckets,” Mr. Van Gorder said. “But when you add all the buckets together, you start to see the full picture.”
Provider fees, a critical funding mechanism for hospitals in many states, remain unresolved in California. The fee that supported hospitals last year has not yet been approved by CMS, and without it, many health systems would face deeper financial distress.
“What we’re seeing is that the provider fee from last year hasn’t even been approved yet, let alone what’s coming next,” Mr. Van Gorder said. “That’s a make‑or‑break issue for many hospitals.
“We’re at the beginning of what could be a very bad domino effect over the next few years. I’m hopeful legislators will be smart — maybe ACA subsidies get extended for a year or two, which removes one bucket,” he added. “That’s not even the biggest issue for us — Medi-Cal and 340B matter more — but now is the time for hospitals to engage their communities and lawmakers and be transparent.”
Safety‑net hospitals feel the strain most acutely
Scripps operates five hospitals, 30 outpatient facilities and hundreds of affiliated physician offices across Southern and Northern San Diego County. Mr. Tande’s analysis shows that the system’s southern facilities — such as Scripps Chula Vista, which serves a large Medicaid population — would be hit six times harder by the Medi‑Cal cuts than their northern counterparts.
“These are hospitals with 35%, 40% Medi-Cal patients. Add Medicare on top, and you’re at 60% to 70% government reimbursement,” Mr. Van Gorder said. “When you lose money on all of those payers, it’s simply not survivable.”
Even before the cuts take effect, Scripps’ Chula Vista campus is operating at about a $40 million annual loss, which can only be absorbed as a community benefit because other Scripps hospitals performed well enough to balance the system overall.
“Our San Diego hospitals are closer to breakeven, but they don’t generate enough to meet capital needs,” Mr. Van Gorder said.
Unfunded mandates and seismic safety cost pressures
Compounding the reimbursement squeeze is California’s seismic safety mandate (SB 1953), a decades‑old law requiring hospitals to withstand major earthquakes. While most facilities meet earlier standards intended to prevent collapse, the final phase — requiring hospitals to be fully operational post‑quake — essentially means entirely rebuilding many existing campuses.
“We’ve already told our legislators publicly that we are not going to be able to rebuild Chula Vista or Mercy San Diego by 2030. The resources just aren’t there,” Mr. Van Gorder said. “And I suspect that, among the 40% of hospital buildings statewide that don’t meet the final seismic standards, there are many other health systems quietly concluding the same thing — it’s just not affordable.”
A bill that would have extended the compliance deadline was recently vetoed by Gov. Gavin Newsom, leaving hospital leaders with few options to delay the enormous capital cost — estimated at more than $2 billion for Scripps’ affected sites.
From a purely economic standpoint, Mr. Van Gorder acknowledged, closing those hospitals might improve Scripps’ financial profile. But he was blunt about the human cost.
“That’s not what I want,” he said. “Closing those hospitals would hurt our communities. But from an economic standpoint? It would relieve pressure on the system.”
Affordability regulations and the limits of cost shifting
On top of reimbursement cuts and capital mandates, California’s newly formed Office of Health Care Affordability is setting cost growth targets that are below actual healthcare inflation — just 3% to 3.5% yearly.
Unfortunately, insurers have latched onto the targets set by OHCA to justify low payment increases, according to Mr. Gorder.
The California Hospital Association sued OHCA in October, alleging the agency’s cost-control measures violate state law and threaten access to care. While OHCA is capping hospital spending at “unattainably low” levels, payers are raising consumer premiums by 10% or more annually — raising questions about the agency’s real impact on Californians’ healthcare costs, according to the lawsuit.
“Commercial payers — the ones we would typically cost-shift to — are now telling us they can’t offer more than a 3% to 3.5% increase, because of what the state has said,” Mr. Van Gorder said. “That’s not what the regulations actually require, but it’s how payers are responding. That’s a real dilemma.”
Cost shifting — offsetting losses from government programs by negotiating higher rates with commercial payers — has long been a financial lifeline for hospitals. But in a climate of capped cost growth and rising payer margins, that strategy is rapidly evaporating.
“When payers raise their rates to maintain profit, those increases get passed along in the form of higher copays, deductibles, and premiums — to individuals or to employers,” he said. “That’s not true affordability.
“We’re running out of room to keep shifting costs to the commercial side. If you operate in a favorable payer mix, that gives you more time before the Medi-Cal cuts really hit. But if you’re a safety-net or rural hospital with an unfavorable payer mix, you don’t have that time. I’ve been saying for years — the rural hospitals get hit first, then the safety-net hospitals, and eventually, everyone else. It’s inevitable unless we change course.”
When you factor in stalled provider fees, pressure on 340B, Medi‑Cal cuts, seismic mandates and affordability limits, it becomes clear that hospitals aren’t the drivers of rising healthcare costs. The financial gains appear to be accruing elsewhere — to insurers, pharmaceutical companies and vendors, according to Mr. Van Gorder.
A domino effect across the safety‑net
For Mr. Van Gorder and Mr. Tande, the greatest fear is not Scripps’ financial pressure, but a broader collapse of access for vulnerable patients.
“We already have maternity deserts, and we’re not far away from having hospital deserts,” Mr. Van Gorder said. “If we don’t address this soon, people will get hurt and die as a result of that. That’s what scares me.
“We’re seeing a cascade of issues piling up. Legislators keep adding new policies without fully considering the downstream impact,” he added. “I’ve said for years — hospitals are at the end of the food chain. We’re the ones who take care of patients. Everyone else up the chain is making money. We’re the ones holding the system together — and we’re running out of room to do it.”
Hospital closures would not happen overnight, but spreading financial strain could force systems to make more hard decisions — job cuts, service line closures, deferred maintenance and capital projects — which many have already been doing since the pandemic.
“I’ve always believed layoffs represent a management failure. The employees didn’t do anything wrong; it’s on us,” Mr. Van Gorder said. “But if operating margins continue to evaporate, hospital leaders will unfortunately have to make more tough choices this year.”
The policy gap — and the case for collective action
Both leaders stressed that hospitals alone cannot solve these structural pressures. They pointed to term limits and political polarization that leave legislators ill‑equipped to grapple with the complexity of healthcare financing.
“We have legislators who are inexperienced, who don’t understand how complex the system really is — and so they don’t know what to do. And if you can’t explain the problem in a 30-second elevator pitch, you’ve already lost them,” Mr. Van Gorder said. “Honestly, I can barely explain it all in 45 minutes — and I live it every day.
“So people tune it out. And then they say, ‘Well, hospitals have been whining for years, but they’re still open.’ And to some degree, that’s true — somehow, we’ve found ways to survive.”
At the federal level, advocacy groups like the American Hospital Association are fighting looming cuts — including the expiration of ACA subsidies and changes to Medicaid financing — but Mr. Tande said California’s influence in Washington is limited.
“When Californians go to D.C. to advocate on issues like OB3 and other federal concerns, we don’t gain much traction,” he said. “Pragmatically, there’s not much we can do at the federal level. We just don’t have the influence now. This has to be solved in Sacramento.”
Scripps is urging the state and governor’s office to explore ways to strengthen the healthcare delivery system without adding new costs to the state — including postponing the final phase of Senate Bill 1953 and rethinking OCHA, which it argues is already undermining hospitals’ ability to sustain care quality and access.
A warning to communities and hospital leaders alike
With safety‑net hospitals facing an existential crunch, the message from Scripps’ leadership is clear: policymakers, payers and the public must understand the full scope of the challenge before “hospital deserts” become a reality.
“These are your hospitals,” Mr. Van Gorder said. “These are the places you come to for care. If something doesn’t change, we’re going to have trouble continuing to serve you.”
For hospital and health system leaders across the country, the situation in California may be a cautionary tale — and an urgent call to collective advocacy and action before the next wave of cuts hits.
